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Kraft sues to stall Cracker Barrel growth

Cracker Barrel Old Country Store’s recent growth appears to be limitless, but Kraft Foods Group could have something to say about the restaurant chain’s plans to get its products on grocery store shelves. At the end of January, Kraft filed a lawsuit against the Lebanon-based re...

Cracker Barrel Old Country Store’s recent growth appears to be limitless, but Kraft Foods Group could have something to say about the restaurant chain’s plans to get its products on grocery store shelves.

At the end of January, Kraft filed a lawsuit against the Lebanon-based restaurant chain in U.S. district court in Illinois citing trademark infringement. At the source of the dispute is Kraft’s line of Cracker Barrel cheese, which has been a registered trademark of Kraft since 1957.

“We’re at a standstill right now,” said Jeanne Ludington, spokesperson for Cracker Barrell Old Country Store. “The parties have agreed to wait on a ruling on a temporary injunction.”

Ludington said the federal district court judge in the case is expected to rule June 12.

Kraft brand cheeses have been ubiquitous in grocery stores for many years. Kraft has sold Cracker Barrel cheese since 1948, according to the U.S. Patent and Trademark Organization’s trademark database.

Cracker Barrel restaurant officials contend food products have been sold in well-marked packages to customers for decades, with no objection from Kraft.

Cracker Barrel restaurants had not entered the grocery retail realm, where Kraft products are primarily sold.

In January, however, Cracker Barrel restaurants shipped its first wave of grocery store products to 325 national grocery retailers.

The first product shipped to grocery stores was a spiral-cut ham, emblazoned with the Cracker Barrel logo. Kraft’s trademark attorneys, who had previously thought the launch of alleged infringing products was not scheduled to begin until later in the year, scrambled to amend the original complaint less than a week after the unofficial launch.

Kraft’s amended complaint seeks permanent and immediate injunctive relief against Cracker Barrel Old Country Stores, and claims that its Cracker Barrel brand cheese “will die a thousand deaths” if the infringing products are not immediately pulled from shelves and further shipping ceased. The suit also claims that if the injunction is not granted, Kraft’s Cracker Barrel cheese brand “may not be able to be resuscitated, regardless of any monetary award.”

To date, Cracker Barrel Old Country Stores is not actually selling cheese to grocery stores under the Cracker Barrel brand, and perhaps they have no plans to at any future date.

Perry Clegg, a trademark attorney at Clegg Law and founder of Trademark Access said while Kraft should not have waited so long to assert its trademark registration, it was nonetheless probably wise in bringing the lawsuit if it intended to preserve its trademark registration rights for the Cracker Barrel mark.

“It is not unreasonable to think that a grocery store customer may buy cheese and ham in the same outing, and be confused when both products in their cart carry the Cracker Barrel brand name,” Clegg said.

Following the lawsuit, Cracker Barrel Old Country Store stock prices soared in late February following a positive quarterly earnings report and have since remained popular among traders and investors. Cracker Barrel stock hovered around $81 per share in NASDAQ trading Thursday.

During a second fiscal quarter report released Feb. 26, the restaurant chain touted positive comparable store traffic, restaurant and retail sales as reasons for a 4.4-percent increase in total revenue compared to the same quarter that ended Feb. 1, 2012. Cracker Barrel officials reported $702.7 million in total revenue during the second quarter.

Compared to the prior year’s second quarter, store traffic increased .2 percent, store restaurant sales increased 3.3 percent, including a 3.1-percent increase in average check and store retail sales increased 3.1 percent. The average menu price increase for the quarter was about 2.6 percent.

Cracker Barrel’s operating margin income was 8.1 percent of total revenue, compared with 7 percent in the previous year’s quarter.

Adjusted earnings per share increased 19.17 percent to $1.43 in the quarter versus $1.20 in the year-earlier quarter.

Cracker Barrel also beat the mean analyst estimate of $1.25 adjusted earnings per share and the average revenue estimate of $694.06 million.

During the quarter, Cracker Barrel opened one new store, raising its total to five during the fiscal year to date.

For fiscal 2013, Cracker Barrel expects between $2.6 billion-$2.65 billion in total revenue and between $4.60-$4.80 of adjusted earnings per diluted share. The revenue projection reflects the expected opening of eight news stories and projected increases in comparable store restaurant and retails sales in a range of 2 percent-3 percent, along with an adjusted operating income margin between 7.3 percent-7.5 percent of total revenue.